DRAFT Econ3220 Lecture 2: Theories of Economic Growth & Development Part 1

What are the key features of Rostow’s stages of economic growth?

Linear stages:

1. Traditional society

2. Preconditions for takeoff

3. Takeoff

4. Drive to maturity

5. Age of high mass consumption.

How does the Lewis two-sector model explain development?

By transferring surplus labour from a low productivity traditional sector to a high productivity modern sector.

What is the 'Lewis turning point'?

The stage at which surplus labour is fully absorbed and wages in the traditional sector begin to rise.

What are criticisms of the Lewis model?

Assumes unlimited supply of labour, capital reinvestment, and constant wages in traditional sector.

What are the main features of the structural change model by Chenery?

Patterns of development include industrialization, urbanization, increased education and savings.

What is 'capital fundamentalism'?

The belief that capital accumulation alone is sufficient for economic development.

How do international dependence theories view development?

Underdevelopment results from exploitative global relationships and dependency.

What is the Neoclassical Counterrevolution?

A reaction against structuralist and dependency theories advocating free markets and minimal state intervention.

How does technological progress shift the production possibility curve?

Outward, enabling higher output levels with the same input.

What are the types of technological progress?

1. Labour-augmenting (Harrod-neutral) - Raise productivity of existing labour

2. Capital-augmenting (Solow-neutral) - Raise productivity of existing capital

3. Neutral (Hicks-neutral) - Higher output achieved with same quantity of inputs

Why is labour-augmenting technological progress important in the Solow model?

It maintains constant factor shares and steady-state growth.

How does human capital contribute to economic growth?

It enhances labour productivity and innovation.

Why is the savings rate important in growth models?

Higher savings can lead to higher investment and capital accumulation.

What role does structural transformation play in development?

It reallocates resources from low- to high-productivity sectors.

What is a core critique of the linear stages approach?

Assumes all countries follow the same path and ignores institutional and cultural differences.

How do dependency theorists explain the persistence of poverty?

Due to unequal trade relations and exploitation by developed countries.

Why might capital accumulation not lead to growth?

Without complementary factors like institutions, education, and technology, growth may stagnate.

What are the conditions necessary for 'take-off' in Rostow’s model?

Increased investment, entrepreneurial class, political stability, and infrastructure.

Rostow’s Stages of Growth

A linear model of development through five progressive stages.

ICOR (Incremental Capital Output Ratio)

The amount of capital needed to produce one additional unit of output.

Surplus Labour

Labour that adds little or no marginal product in the traditional sector.

Lewis Turning Point

The point at which surplus labour is exhausted and wages begin to rise.

Structural Change

A shift in economic activity from one sector to another, e.g., agriculture to industry.

Chenery's Patterns of Development

Empirical observations of structural transformations across countries.

Capital Fundamentalism

The belief that capital accumulation alone drives development.

Dependency Theory

A theory asserting that poor countries are exploited by richer ones in a global capitalist system.

Labour-Augmenting Technological Progress

Improvements in technology that increase the effectiveness of labour.

Hicks-neutral Technological Progress

Tech progress that increases productivity equally for all inputs.

Neoclassical Counterrevolution

Return to market-oriented policies and critique of state-led development.

Production Possibility Curve (PPC)

A curve showing maximum output possibilities for two goods given resources.

Technological Progress

Improvements in production efficiency and innovation.

Human Capital

The stock of skills and knowledge embodied in labour.